The S&P/TSX Index rose 74 points on March 26. This represented a modest bounce back after it suffered consecutive triple-digit losses to close the previous week. It has dropped 5.6% in 2018 thus far, and pressure will likely remain, as we look ahead to the next central bank rate decision in April.
Where should investors turn with volatility making a comeback? Attending to the profit machines that are Canadian banks is not a terrible start. Rising rates are making investors anxious, but superior margins should boost profitability for bank credit segments going forward, even if growth is slowed by new regulations. Let’s take a look at three of my top options heading into April.
Bank of Nova Scotia (TSX:BNS)(NYSE:BNS)
Bank of Nova Scotia stock has dropped 2.3% in 2018 as of close on March 26. Shares are up 1.8% year over year. Bank of Nova Scotia possesses a significant footprint in fast-growing Latin American economies. Developing markets are an attractive value play to start 2018, while stock markets in developed nations face heightened volatility due to shifting monetary policy and rising trade tensions.
Bank of Nova Scotia released its first-quarter results on February 27. It posted net income of $2.33 billion compared to $2 billion in Q1 2017. Its international banking segment saw net income climb 16% to $667 million, and its Canadian banking segment also reported 12% growth to $1.10 billion. Bank of Nova Scotia also hiked its quarterly dividend to $0.82 per share, representing a 3.9% dividend yield.
Royal Bank of Canada (TSX:RY)(NYSE:RY)
Royal Bank stock has declined 2.7% in 2018 so far. Shares have climbed 3.4% year over year. At the end of the most recent earnings season for banks, Royal Bank reclaimed its title to become the largest Canadian bank with $1.28 trillion in assets. It released its first-quarter results on February 23.
Royal Bank declared a one-time charge of $178 million due to the U.S. Tax Cuts and Jobs Act, which was signed into law in December 2017. As with other institutions with a large U.S. footprint, Royal Bank is likely to benefit from the dramatic reduction in the corporate tax rate south of the border. Personal and Commercial Banking saw net income rise 8% from Q4 2017 to $1.52 billion. This growth has been propelled by higher average volume growth and higher fee-based revenue in its Canadian banking sector.
Royal Bank also hiked its quarterly dividend by 3% to $0.94 per share, representing a 3.5% dividend yield.
Toronto-Dominion Bank (TSX:TD)(NYSE:TD)
TD Bank stock has decreased 0.35% in 2018 and is up 12.6% year over year. It is the second-largest bank in Canada with $1.26 trillion in assets reported after the first quarter. TD Bank also absorbed a sizable one-time tax charge of $405 million, as it boasts the largest U.S. footprint of any Canadian bank. Canadian and U.S. retail banking both delivered double-digit growth in the first quarter.
TD Bank announced a quarterly dividend of $0.67 per share, representing a 3.2% dividend yield.
